Oracle is looking to Agile as the foundation for its vertically oriented PLM business as its current PLM-type capabilities are fairly non-descript, marked by modest CAD, project collaboration, project management and sourcing functionality within the E-Business suite. It is also looking at it as a way of burrowing into SAP accounts. The acquisition allows us to offer yet another strategic applications to SAP customers, said president Charles Phillips.

However, David Mitchell, software practice leader at Ovum believes the acquisition marks a new turn in the increasingly aggressive fight between Oracle and SAP.

Both Oracle and SAP recognise the strength of their competitor in some vertical markets, and acknowledge their own sub-optimal position, he said. Absolute detente never exists. However, there is a ‘realpolitik’ stance that some battles are too tough to fight. SAP was recognised as dominant in many of the asset intensive industries. Although Oracle never declared these markets as ‘no go’ territory, there was a tacit recognition that SAP was more difficult to attack here and that resources were better deployed in markets that had a stronger Oracle heartland. The Agile acquisition marks a change, enabling Oracle to go after SAP in previously untouched SAP dominated industry sectors.

Oracle gained a foothold in asset intensive vertical industries like high-tech, manufacturing, and engineering though its acquisition of JD Edwards but the Agile acquisition takes it a stage further, and at a time when the PLM market is growing.

Of course, there is short-term merit in the deal, but the real value is in the long game. It offers Oracle the ability to develop into vertical markets where it has not traditionally been strong, said Mitchell. Agile has expertise in life sciences, consumer goods, food and beverage, and high tech.

Agile will bring long term strategic benefits but Oracle should also be able to realize immediate gains. The PLM market is a high growth market with annual growth estimated at between 8% to 10% from 2006 to around 2010 and Agile is one of the recognized players in the field, although not a leader in terms of size.

It expects revenue to be up by 12% to $37m or $38m for Q4 2007, including license revenue of $14m to $15m, plus a 1250-strong customer base. The leaders in terms of revenue, in what is a consolidating market, are the IBM/Dassault combination, UGS which has recently been acquired by Siemens, and PTC, who are all either above or close to the $1bn market in terms of annual revenue.

The market has two distinct sides. PLM tools, which includes functions like mechanical computer-aided design, computed-aided manufacturing, electronic design automation, engineering simulation and analysis and technical publishing; and collaborative product definition management applications that are focussed on collaboration, visualization, data exchange, portfolio management, compliance management, strategic sourcing and configuration management, and tend to be highly industry specific.

The tools segment is the largest segment in terms of revenue but the collaborative product definition management side is growing faster. UGS, IBM/Dassault and PTC offer broad application suites that cover both areas, vendors like Agile, Matrix One (who was acquired by Dassault) and SAP concentrate on the collaborative product definition management side.

SAP, which entered the PLM market in 2000, and currently has around 5,500 customers, is not seen as a leader either in terms of its PLM revenue or its direction, despite extending it to covers areas such as service and maintenance management and the PLM business is believed to be a smaller percentage of its overall revenue than areas like CRM and SCM.

Our View

The deal is expected to close in July but it will not cause immediate heat in the market as this acquisition has all the signs of being a slow burner. Given Oracle’s Fusion distractions, not to mention its ongoing acquisitions, it is unlikely to be highly proactive about pushing into the new markets in the short term – it will probably rely on Agile to continue doing what it is currently doing but look for greater success because of the boost Oracle-backed financial stability can provide. We would expect Oracle to use Agile to gain an advantage in joint Oracle/SAP sites however, as a prelude to going head on with SAP in what could be considered SAP’s home markets of manufacturers and asset-heavy verticals.